Question

1) Which one of the following would most likely be allocated to products using ABC by McDonald's?

A) Cost of plastic gloves worn by the burger cooks

B) Cost of employees who chop lettuce

C) Cost of tomatoes added to burgers

D) Cost of cups for soft drinks

2) Fixed costs.....

A) increase per unit as total production decreases

B) increase in total as total production increases

C) decrease in total as total production decreases

D) decrease per unit as total production decreases

3) Variable costs...

A) remain constant per unit

B) will stay the same in total

C) increase per unit

D) decrease in total

Answer 1

1) Which one of the following would most likely be allocated to products using ABC by McDonald's?
Correct Answer = Option B) Cost of employees who chop lettuce would be allocated using ABC method.
This is because product driver can be used as ‘lettuce’ used and employees cost can be allocated accordingly.

2) Fixed costs
Correct Answer = Option D) decrease per unit as total production decreases
This is because Fixed Cost REMAINS CONSTANT in total. Hence, when no. of units increases, fixed cost per unit decreases, and when no. of units decreases, fixed cost per unit increases.

3) Variable costs...
Correct Answer Option A) remain constant per unit
Variable cost are ‘variable’ in the sense that they change in TOTALITY while they remain constant ‘per unit’.
Example: Variable cost = $ 2 per unit.
If 10 units are produced, total variable cost = $ 20 (but variable cost per unit = $ 2)
If 20 units are produced, total variable cost = $ 40 (but variable cost per unit = $ 2)